Public Expenditure

Part of the debate – in the House of Commons at 5:48 pm on 20 February 1986.

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Photo of Mr Terence Higgins Mr Terence Higgins , Worthing 5:48, 20 February 1986

Clearly this debate should be among the most important in the annual parliamentary cycle, dealing as it does with the allocation of the entire resources of the Government. It is true that the presentation of this year's White Paper, which is significantly improved, provides a better basis than ever before for the House to discuss these vital matters. I should like to express my appreciation of the way in which the Government have responded to recommendations of the Treasury Select Committee as far as the presentation of the accounts and the diagrams in the White Paper are concerned. There is obviously a problem about how much bigger the White Paper should get in terms of the amount of detail it contains. Nonetheless, it now provides a reasonable foundation for the House to discuss these issues.

Having said that, we should recognise that this debate has never been a very satisfactory parliamentary occasion. It was rather worse when it used to be a two-day debate. It may be worth while to spend a few moments analysing why that should be. First, the fact that there is a vote at the end of the proceedings is irrelevant to any subsequent events, as was demonstrated clearly when the previous Labour Government lost the vote on the public expenditure White Paper and nothing happened in consequence. That does not greatly help one's interest in the proceedings in relation to determining an outcome.

The second reason why this occasion tends to be unsatisfactory is that it is very much a post mortem on decisions already taken in the previous public expenditure round. We ought to be able to deal with these matters more efficiently. That brings me to the third problem. There is great pressure on the House, particularly from the Opposition, to debate the White Paper soon after its publication. That has considerable disadvantages, because it means that the Treasury Select Committee is under considerable pressure to produce a report at short notice. It also means that other Select Committees, which might now usefully study the considerable amount of detail that appears in the document, do not have the opportunity to do so in time for the debate.

The next reason why it is rather unsatisfactory is that the autumn statement contains a great deal more information over a period of years than was previously the case. The emphasis has tended to move towards the debates on the autumn statement and the Budget, which means that this debate, for the reasons that I have given, tends to become a much more technical exercise. That being so, the Committee carefully studied the position and has given a clear recommendation at the beginning of its report that the timing of the debate is wrong.

The correct time, following publication of the White Paper, for those matters to be debated is May or June, when the next round of public expenditure decisions are just going to Ministers. The House can then express a view of what it believes the public expenditure priorities should be.

I hope that it will be possible to persuade both sides of the House that such a change in our parliamentary timetable would be a significant improvement. We do not have much opportunity to debate economic affairs in June or July. I hope, therefore, that the Opposition and Government Back Benchers will agree that that would improve the overall way in which the House and the Committees can monitor what the Treasury is doing.

That brings me to the priorities, which were dealt with at some length in the report to which the Chief Secretary referred. We spent a large chunk of our report questioning the machinery by which priorities are determined. That gave us considerable cause for concern. We picked out three examples of the way in which that is seen not to be working properly. Last year, for example, there was a problem over student grants. The Department of Education and Science was then told that it had to find savings elsewhere within its own budget.

We had another case with regard to overseas aid. The Foreign Office had again to find offsetting savings within its own budget. There has clearly been a decision that the Department of the Environment should apply more money to the inner city problem—something which I am sure is correct, but it is being done at the expense of the shire counties, again because the Treasury insisted that the additional resources needed to meet unexpected expenditure must be found within the same Department.

I and the Committee do not believe that that is a sensible way of proceeding. If one is going to allocate resources in the light of some new demand upon them, priorities should be reassessed, not merely within the Department involved but across departmental boundaries.

That brings me to a point which the Chief Secretary mentioned-whether negotiations should take place, to the extent that they do, bilaterally. It is possible to reallocate priorities on that basis, because the Chief Secretary puts more pressure on one Department than another. We then have some reallocation of reserves. It does not seem that the Cabinet as a whole considers the overall picture when determining which item should be given greater priority and which less.

The whole pattern of expenditure has a tremendous momentum of its own. It can only be adjusted comparatively slightly, but, nonetheless, all the priorities should be reassessed in the course of the annual expenditure round.

There was an interesting article in the Financial Times today which claims that in future there will not be proposals for increases and additional expenditure during the course of the round. The Chief Secretary did not comment on that. I do not know whether the Financial Secretary will when he replies. The thrust of the argument in the article, if it is valid, is that the savings will be found within the Department rather than resources being allocated afresh across Departments if there is an increased claim in one area. It is only with regard to the overall picture that one should say that we should find offsetting savings if more expenditure is incurred elsewhere. To prevent a position where priorities are assessed across Departments seems to lead to a serious misallocation of resources over time.

I hope that the Chief Secretary, whom I congratulate on his new job and who will bring his personal approach to the problem, will carefully appraise the way in which the machinery is operating. I am far from sure that it would be to the Treasury's detriment if something along those lines is done.

I should pick up one point made by the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley). He seems to be under the impression that the Government's and the Treasury's present plans are to cut public expenditure. That was the original intention. I believe that I should be right in saying that that intention has now been modified and that the present intention is to control rather than to reduce public expenditure.

Another important point in the Chief Secretary's speech is that he continues to assert that finance—revenue if one prefers it— determines expenditure, not the other way about. The Treasury Select Committee has had considerable doubts about that. My hon. Friend the Member for Bridlington (Mr. Townend) intervened in the Chief Secretary's speech and questioned him on that point. If that is indeed the case, we must carefully consider what the effect of the oil price fall and the consequent reduction in available resources is. Clearly, it alters—if what the Government say is true—the amount of money we have available to spend.

In response to the intervention, the Chief Secretary said that it would all be sorted out in the Budget. I suspect that the logic of that is a little shaky, to say the least. Either finance determines expenditure, in which case the way in which it is raised is irrelevant because it is a constant, or we must adjust for changes in the economic environment. I believe that that is a false argument, because I do not believe that in government finance determines expenditure. The reality is that the expenditure pattern is fixed and the revenue is then produced to finance it. I am puzzled about why the Government should have got themselves into that argument.

Some other important points arise from the White Paper which I should like to mention briefly. I am worried about one aspect of the presentation. A summary of the main points at the beginning of volume I of the White Paper points out where expenditure has increased. It should perhaps also include some reference to where it has been reduced.

The reserves are of considerable interest. Our report deals with them in paragraph 30. We found more and more in the course of questioning that, whenever there was an unanswered question, the answer was that it would all be found in the reserves. The Chief Secretary did not explain why apparently the uncertainty is becoming greater and greater and so bigger and bigger reserves are needed.

That tends to undermine the White Paper's purpose, which is supposed to be to show where the resources are likely to be allocated. We must have some reserves, but it is far from clear why they have to become bigger and bigger, except that we find that local authority expenditure is based on a straightforward assumption without any genuine attempt to appraise likely expenditure over the planned period.

In those two respects — the reserves and local authority aspects of the White Paper—the House is being given less information than it was before.

I do not wish to go into the subject of privatisation and how the proceeds should be treated. The Committee has dealt with that issue at considerable length on a number of occasions. I merely wish to point out that the right hon. Member for Sparkbrook changed his ground halfway through. We can consider the proceeds as reductions in public expenditure, as revenue or as a means of funding the public sector borrowing requirement. He said that they should be treated as revenue but then went on to argue that they should be a means of financing the PSBR. The final view—that they are a means of financing the PSBR—is correct.

I want to deal with the matter of infrastructure and tax cuts. I think that the argument is becoming absurdly black and white. It is a matter not of whether we have one or the other but what priority we give to them, whether a particular tax cut is more beneficial in relation to unemployment as against a particular item of public expenditure. One has to assess the priorities, but the issue has now become very black and white. The Opposition say more should be spent on infrastructure and Conservative Members are accused of wanting only tax cuts. We have to have a balance. In fact, that is what we have— a considerable amount is being spent on infrastructure and at the same time there is a tax policy related to that.

The final paragraph of the Committee's report gives cause for concern. It shows what is happening on capital expenditure or net capital formation in the public sector. We give a table for public expenditure on total fixed capital formation excluding defence which shows a worrying trend, if one looks at it in terms of index numbers, which is perhaps the easiest way of doing it.

Many hon. Members wish to speak and I do not want to detain the House for much longer. Traditionally, this debate has ranged very widely over the whole subject of economic policy and I have to say that the White Paper is based on an underlying assessment about the economy and economic forecasts. I think that we would be foolish to suppose that the current economic position is other than perilous. The Chancellor of the Exchequer has been successful in hitting the right balance between interest rates and exchange rates. It was a close-run thing at the beginning of the year, but ultimately it has not worked out too badly.

However, the position in the United States still gives very grave cause for concern. Today we heard various statements by the chairman of the Federal Reserve, Mr. Paul Volcker, which appeared to be in conflict with some of the remarks made by the Treasury Secretary, Mr. Baker. The American budget deficit gives grave cause for concern. It has not been significantly reduced and it still imperils the world economy and there is the risk of a so-called hard landing in which the dollar collapses. We would then find high interest rates and a world recession. That development could seriously jeopardise the plans in the White Paper. Therefore, I believe that the Chancellor should do everything possible to resolve that.

The so-called Group of Five solution, which in the end turned out to be a group of two—Japan and the United States of America—has been successful in producing a considerable decline in the value of the dollar. That has been done on the basis of intervention and on threats on intervention, and the underlying position still remains very dangerous. I think that the Chancellor should consider that in his negotiations with the Group of Five.

Unless we deal with that problem, and it cannot continue indefinitely unresolved, the basis of the figures in the White Paper, complex and detailed as they are, is in jeopardy. Nonetheless, I think we should be grateful for the way in which the Government have responded to the Committee's report, certainly the improvement in presentation. I believe that we are in a much better position to debate the issues now than previously, but I hope that in future this debate will take place in June rather than at this time of the year.